Do Hostile Takeover Threats Matter?

Much of the vast literature on corporate governance focuses on internal issues, such as board characteristics. Yet external governance –  the market for corporate control, often known as the takeover market – is  critical to determining how well a company is run. Managers are less likely to exploit shareholders when subject to the discipline of the takeover market, making it a governance instrument for reducing agency problems. In a new study, we demonstrate the impact of the takeover market on companies by investigating how it affects an important measure of their financial health: credit ratings.

Credit ratings provide information on … Read more